PGB, the €27.3bn Dutch multi-sector pension fund, said it intended to raise its contributions by 4 percentage points to 28% next year in order to keep pensions affordable.
It said the rise was particularly necessary because of ever declining interest rates as discounting criterion for its liabilities.
The introduction of a new and lower discount rate for liabilities next year as well as the transition to a new pensions system also required a significant contribution increase, it added.
The pension fund had kept the premium for 2020 at last year’s level of 24%, to enable workers and affiliated companies with average salary arrangements to prepare for a rise.
The board said its decision to increase premiums was based on the scheme’s last year’s financial position.
Since then, its funding level had dropped 2.7 percentage points to 100.6% at the end of March. However, the board said that, despite its worries about the current situation, it was too early to make predictions for righs cuts next year.
The pension fund posted a net return of 16% for 2019 – an underperformance of 0.4 percentage points – and attributed the overall return largely to the value increase of its fixed income holdings as a consequence of falling interest rates.
Its 39.4% matching portfolio had returned 11.7%, exceeding the benchmark by 0.5 percentage points, especially due to the contribution from credit risk in its credit and residential mortgages holdings, it added.
In contrast, the 19% gain of its securities portfolio reflected an underperformance of 2.6%, in part as a result of depreciating equity put options following significant market rises in 2019, the scheme said.
In its annual report, it said the scheme had decided to develop a policy aimed at reducting carbon emissions within its 48.6% equity holdings, adding that is was also measuring the carbon footprint of its credit portfolio.
It indicated that it had raised its impact investments by €462m to €654m last year, largely through purchasing green bonds.
PGB said it had introduced a new dynamic hedge to dollar, sterling and yen, which is subject to differences in interest rate levels, purchasing power as well as market trends of foreign currencies relative to the euro.
The approach reflected a fine-tuning of its standard hedge of 75% of non-euro currencies of developed countries, explained Rob Heerkens, trustee for balance and asset management. The dynamic cover ranges from 50% to 100%.
He said that PGB does not cover the risk posed by emerging market currencies. Last year, it had hedged 54% of its exposure to non-euro currencies.
The multi-sector scheme raised the minimum level of its dynamic interest hedge – linked to the 20-year swap rate – from 20% to 30%. Its current cover stands at approximately 38%.
The scheme also said that it would move its Amsterdam-based office to Amstelveen this year, and that it was preparing to replace its internal investment information system as well as its system for pensions administration and client services.
Jochem Dijckmeester, the pension fund’s chair, said the new administration system was largely aimed at the new arrangements in the wake of the pensions agreement, which are expected to require tailor-made services.
He added that a decision about a new Information and communications technology (ICT) system is to be made this year.
Dijkckmeester added that the scheme wanted to increase the board’s efficiency by adding the option of filling future vacancies of workers’ and employers’ representatives with two expert trustees.
However, he said the pension fund also wanted to stick to the concept of equal representation of workers, pensioners and employers.
PGB has 86,370 participants, 79,625 pensioners and 157,165 deferred members, affiliated with 2,575 employers. It posted an 8.3% loss over the first quarter of 2020.